Episode Transcript
[00:00:00] Speaker A: Matt, apologies again. I'm not. You absolutely out kicked me on the hair today. I don't have any hair gel with me. I'm on a very short, like little 20 hour turnaround at my place. I've got to go back to my parents for, to help my mom when my daddy had surgery this week. So I'm not exactly looking my best. You've got me killed on the appearance, but good to see you as well. I'll keep me small on the screen.
[00:00:26] Speaker B: You look great.
[00:00:26] Speaker C: You're clean shaven. Looks like you're gonna join the military.
[00:00:28] Speaker A: Well, good story about that. So at the hospital the other day, my dad's nurse came in there and asked me if I was his brother. So that was my cue to ditch the gray beard.
[00:00:41] Speaker C: Yeah, that's a tough one.
[00:00:42] Speaker A: That one hit.
[00:00:43] Speaker C: I got nothing.
[00:00:43] Speaker A: Yeah, that one hit hard. We said that this was gonna be the year of humility, I believe, like back in January.
Hitting pretty hard. Not gonna lie.
[00:00:53] Speaker C: I didn't know the intelligence would age us so rapidly, but apparently it is. I mean, look at me. God, I look like grandfather.
[00:01:01] Speaker A: Yeah, well, good to see you as always, man. So, so what's going on in the, in the world of Matt right now? So we, you and I had a cool talk yesterday and I know you kind of gave me the, the rundown of some data points. We've got this little tug of war thing going, going on again between the, the smart roommate and the, the goof off roommate, the equity market. So what's going on, the tug of war between the bond market and the equity market right now?
[00:01:30] Speaker C: Well, again, the bond market is, I think, staying ahead of the curve like they always do. What's his name? Poindexter.
[00:01:38] Speaker A: Poindexter.
[00:01:39] Speaker C: Yeah, Poindexter the nerd.
He's not worried because all he cares about is data and what, what, what does the data say?
So if you look at the high yield spreads, right again, back to treasury, treasury bonds against bonds issued by companies with a lower credit quality. That is, if, if the economy is going to go into recession, those companies that have poor credit quality have a poor credit quality for a reason and will have difficulty servicing their debt. Thus their bonds reduce significantly in price because the market is worried about them being able to service that debt. So the yields jump up and it spreads and it widens the spread between Treasuries and those bonds. And we like that number to be less than 6%. If it goes over five and a half or 6%, we kind of start to give it some side eye.
[00:02:30] Speaker B: Right.
[00:02:31] Speaker C: Once it gets over about 8%, we really start to pay attention.
It's at 3.19.
[00:02:38] Speaker B: Okay.
[00:02:38] Speaker C: It's pretty darn low.
It's. And it hasn't really, it really never moved. It went up to 4.6 at the height of the tariff talk and the height of the recession talk in early April. That's as high as it ever got.
[00:02:50] Speaker B: Okay.
[00:02:51] Speaker C: So we're not seeing any sort of issues on the bond markets, but again, we're seeing poor. We're seeing poor, poor, Poor sentiment.
[00:02:59] Speaker B: Right.
[00:03:00] Speaker C: Poor sentiment readings.
[00:03:01] Speaker B: Right.
[00:03:01] Speaker C: So there have been a few, there have been a few items, data points that have pointed to a little bit of sluggishness in the economy. Don't get me wrong, it's not all rosy as far as the hard data is concerned. The ISM numbers came out this week, both manufacturing and services.
[00:03:20] Speaker B: Okay.
[00:03:21] Speaker C: Manufacturer has been contracting for about 28 months, about 31 months, almost straight now, which is the longest in history. It's at 48.5 and at 50 it's neutral. At 50.1, that sector of the economy is expanding.
[00:03:35] Speaker B: Okay.
[00:03:36] Speaker C: That's how the ISM number works.
Same thing with services. At 50 it's neutral. At 50.1 it's expanding. At 49.9, it's contracting. So the ISM server manufacturing number came out at 48.5, but that's actually up a touch. It's starting to curl up. We think it's going to head into expansion mode here over the next three months or so, which is a good thing.
[00:03:56] Speaker B: Okay.
[00:03:56] Speaker C: It's usually indicative of a new sort of economic cycle which we believe is taking place.
However, the services number came in at 49.9. It was down from 51.6 last month. So we had expansion last month, 49.9. So it was almost neutral, Contracted slightly. Why is that important?
ISM services. So the Institute of Supply Management. That's what ISM stand for. The services number represents 72% of our economy.
So it's a big one.
[00:04:28] Speaker B: Right.
[00:04:29] Speaker C: We are a services based economy. So that contracts, that's a pretty spicy meatball, you know what I mean? And it showed that it contracted just a little bit.
[00:04:40] Speaker B: Right.
[00:04:40] Speaker C: But the, also the job openings number came out this, this week. 7.4 million jobs available, up from 7.2 last month and a $7.1 million estimate or 7.1 million consensus. So that's showing some strength in the labor.
[00:04:57] Speaker B: Right?
[00:04:58] Speaker C: A little bit. We have a little bit more than one job available per person, which is a pretty decent ratio. They would like it to be about 1.05 to 1.1.
[00:05:07] Speaker B: Right.
[00:05:07] Speaker C: But if it gets above 1.15 to 1.2, that's when the Fed goes, hey, inflation is going to start taking root because when we have this many open jobs and only a certain amount of people to, to, to fill them, that's when wages go up and that sort of starts to plant the seeds of inflation again. But we're not there.
The jobs number came out this morning.
Okay, the actual jobs, the payroll report for May came out today. 139,000 jobs were created in the month of May. The estimates, the Dow Jones estimate was 125,000. The consensus estimate was 130,000.
[00:05:43] Speaker B: Okay.
[00:05:44] Speaker C: So last month we had 177,000 that was posted, but that was revised down to 147,000. So we actually only had 147,000 jobs posted created in the month of April and 139,000 for the month of May and that may be revised down when the June number comes out beginning of next month.
So what is that kind of telling us? I mean if you, if you take 2024 as a whole, right. The average monthly jobs created in 2024 was 168, 170,000 right through there.
[00:06:18] Speaker B: Okay.
[00:06:18] Speaker C: We're about 125,000amonth right now.
[00:06:21] Speaker B: Okay.
[00:06:22] Speaker C: So we're definitely seeing a cooler. Okay, we're seeing a, we're seeing, you know, the services number 49.9. We're seeing some decent open jobs and we have a pretty decent economy from what the, what the bond market's telling us. And, and earnings are strong. And we're seeing The Atlanta fed GDP tracker that was at 3.8% last week and this week it actually jumped earlier in the week and now it's back down to 3.8%. As for Q2, so what that number means is the Atlanta fed tracker takes Q2 GDP and annualizes the number, okay? And that's showing it 3.8% on annualized base, which is very, very strong. However, that's skewed because of, we have far fewer imports this quarter than we had last quarter because last quarter we had a tremendous amount of imports that skewed the number negative.
[00:07:17] Speaker B: Right.
[00:07:18] Speaker C: So I think this is kind of a catch up. We are probably really living in about a two to two and a half percent economy right now, which is. Okay, so we have CPI that's coming in next Wednesday. I think that's going to come in probably 0.1 maybe 0.2, which will show a year over year of probably 2.7 or 2.8 and PCE sitting at 2.7, which will probably come in at 2.6. Again, we are back to 200 basis points, 2% if you will, of restriction.
The Fed, the policy rate, the upper bound of the policy rate is at four and a half percent.
We have inflation roughly about a little over two and a half. We have, we have a slowing ish economy.
We have services that are neutral to slowing.
We have, the ADP number came out at only 37,000 jobs. So we have, we have some things we need to look at. And I think it's time in fact one of my advisors this morning for the Fed to get in gear and.
[00:08:15] Speaker B: I couldn't agree with it more.
[00:08:16] Speaker C: I think a July rate cut is absolutely in order. I don't know they'll do it. I think it's absolutely in order. I don't know that.
[00:08:27] Speaker B: Too early.
[00:08:28] Speaker C: A June cut would probably be too early. It could spook markets a little bit.
[00:08:31] Speaker B: Okay.
[00:08:32] Speaker C: It could maybe telegraph to the world, to the economy that the Fed believes there's a, maybe an imminent recession.
But I think a July rate cut and then maybe another couple of rate cuts for the end of the year is exactly what's warranted to get that upper bound, to get that policy rate within 100 basis points of where, where CPI PCE will be at the end of this year. I don't think is out of the realm of, of unnecessary at all. I think, I think the Fed needs to be proactive with this. If they don't, I think there could be a, you know, they could be committing the same sins of 2021 and 2022 where they have to play catch up in a hurry. And that's, you know, when they have to do that, when they have to float, you know, basically take a flamethrower to, to monetary policy to get it to either expand or contract the economy.
That's usually a very painful ride.
[00:09:25] Speaker A: Yeah, you don't want to repeat the same sins that you just recently committed. I mean, just as a general rule of thumb, it's hard enough to keep from committing fresh sins on a regular basis. Right. You don't want to have to, you don't want to go back and play repeat of the things that you just screwed up. It's that, that's a little bit redundant. If you're going to stand or you're going to mess up and I mess up something new in a fresh way, I Like to be creative in the ways that I mess up in the future.
[00:09:54] Speaker C: No, sure. But I mean, there's, there's, we can see. I mean, if you look at the housing market, right.
60% of US counties now are reporting a contraction of housing prices.
[00:10:07] Speaker A: A contraction.
60% are reporting a contraction.
[00:10:11] Speaker B: Correct.
[00:10:12] Speaker C: 60% of US housing. 60% of US counties are, are reporting a contraction of housing prices.
[00:10:19] Speaker B: Okay.
[00:10:20] Speaker C: So again, and if you, if you sort of hook that to the wagon of cooling ism services jobs, cooling, the labor market really starting to cool, then it's not difficult to make a case of where parts of this economy could be headed. And if that becomes a problem, right. If you have declining housing prices and you have a cooling labor market, not that anyone's going to say this is going to turn to 2007, 2008, 2009 again, but that is the set of ingredients that caused that is you had elevated home prices and then you had a labor market that just cratered and you had a Fed who was absolutely sleeping drunk in the gutter and didn't move when they should have moved.
And then, then what, what did they have to do? They had to, they had to slash rates to zero and they had to bring in the, the, the, the TARP programs and do a bunch of quantitative easing which could have been avoided had they just lowered rates and tried to keep the house, you know, try to try to keep these things in place, but they didn't do it.
[00:11:30] Speaker B: Okay.
[00:11:31] Speaker C: So my hope now is that the Fed gets ahead of this thing and starts to neutralize their policy rate in order to, because if money's too expensive, you're going to see a reduction of capital expenditures that is growing of the economy, hiring of new people, those kinds of things. And if people can't then look at their, go to their homes for, you know, access to a certain amount of their wealth in case of a, of a difficult time, that could be, that could, that could compound the folly which is again, what happened during the great financial crisis. So I don't think there's any chance of that. I mean, I'm not saying there's any chance. There's always more than a zero percent chance, but I think it's an incredibly low chance of that taking place.
But there are some things that I think should be paid attention to. But again, we look at objective optimism here, right? There's a lot of things to be, to be, you know, to, to be confident about again. So if you look at the Goldman, the Goldman Sachs gdp tracker for Q2 is at 3.3 and they're usually pretty conservative.
[00:12:42] Speaker B: Right.
[00:12:43] Speaker C: So we're seeing, seeing a strongish economy. We're seeing a pretty strong economy.
You know, nothing that's going to blow the COVID off the ball here.
[00:12:53] Speaker B: But.
[00:12:53] Speaker C: We'Re seeing some issues in the labor market side and we're seeing some housing pricing issues. So I think that should be enough for the Fed to say, okay, I think we need to maybe lower rates because if we don't, that could really get into earnings, that could really get into corporate earnings that could get into, you know, layoffs that could, that could start a problem that could. Or that I guess that could ring a bell that you can't unring. That takes a long, long time to fix.
[00:13:24] Speaker B: Right.
So.
[00:13:26] Speaker A: Well, anytime you have, we have this recency fear bias in a way. And you mentioned 070809 and the Fed was kind of drunk in the gutter in the post Covid fiasco.
It was. I don't know if it's necessarily accurate to say we overcompensated in the opposite direction, but I mean the Fed was as aggressive as it could possibly be during the whole Covid mess to try to keep us out of the gutter and to keep the economy going and probably overshot the target a little bit and overstimulated the economy, some could say. And that's where we ended up with the inflation problems in 2122.
And now we're in this spot where the market's going to fear the sins of the past, if you will, and they're going to fear, okay, well I think the market could be looking at now and saying, okay, we're at all time highs or close to it. We've got this economy with a huge head of steam. We don't want the Fed to fall asleep at the wheel again like they did in 0708 09. At the same time, the opposite side of that coin is we don't want to commit the same mistakes that we did in 2122 and overstimulate.
Am I saying this or framing this in the right way? It sounds to me that the bond market is a little bit more afraid of the 2122 mistakes where the equity markets might be thinking back to like 070809 and afraid that we're maybe ignoring, not ignoring the. It sounds like the equity market's a little bit more afraid of a collapse in the economy than it is run away way inflation right now. And you're saying objectively the data says that's not where we're at.
[00:15:09] Speaker C: Correct.
So yeah, the, the equity markets are, the equity markets are, they're being, Although, you know, here we are at 6,000 again, which by the way we said Mark would get to 6,000 in June. Here we are at 6,000, first time since February 24th. So the equity markets are starting to look and you know, see some light at the end of the tunnel.
There has been some recent developments I think that are helpful.
[00:15:42] Speaker B: Okay.
[00:15:44] Speaker C: For instance, the China this morning just released, there's a Reuters report China released. The China issues rare earth licenses to the top US Automakers for GM and Stellantis. So that is kind of a prelude to a larger China trade deal, I think. And I think the equity markets really like that and the bond markets like that.
[00:16:05] Speaker B: Okay.
[00:16:05] Speaker C: But the equity markets, you know, they are, they, they jumped this Morning on this 139,000 job report. 139,000 new jobs created.
[00:16:15] Speaker B: Okay.
[00:16:15] Speaker C: Because it was higher than consensus.
[00:16:17] Speaker B: Right.
[00:16:18] Speaker C: But it was also, it wasn't so high where it was, you know, it would raise it, you know, was bad for yields. But then of course yields went up. So we saw, we saw the 10 year treasury go from basically 435 yesterday, it's at 448 today. So we saw a 13 basis point jump in the 10 year treasury note because of the, because of the jobs report. Although it wasn't a hot jobs report because 139,000 jobs isn't that hot at all. It was just higher than consensus. So you know, but the, if you look specifically at the equity markets, are they really buying it? I don't know because if they were, I think the market would be at 6,200 right now. In fact, if you look at the, the AAII again, the American association of Individual Investors, so your retail investors.
[00:17:05] Speaker B: Right, okay.
[00:17:06] Speaker C: It's still, it's still showing bearish. 41.4% of respondents are showing in the bear can, 32.7 are showing in the bulk. So we have about a 9% spread. Now when that spread gets to be 20%, that's, that's, that's almost like a buy signal. That's so bad. So we're about halfway to a buy signal, if that makes sense. We've got new dollars sitting on the sidelines waiting to pump into this market.
So if this bomb is get. I feel like we have two bombs being packed right now.
[00:17:35] Speaker B: Right?
[00:17:35] Speaker C: Like the, the, the market is going to just absolutely explode and just go to 6, 800, 7000 or the market's just going to sit here and dwindle away. And I would say cave in, but, but not really ignite itself.
[00:17:50] Speaker B: Okay.
[00:17:51] Speaker C: But if we have a Fed that starts to be proactive and cut rates, we get three rate cuts this year, maybe four, the equity market. And we see the yield that brings yields down and that discount rate comes down, which it will, okay, all of a sudden that's going to be real. That's really good for, for, for equity markets. That's really good for risk assets.
[00:18:15] Speaker B: Okay.
[00:18:16] Speaker C: We know that if that interest rate comes down, those discount rates come down.
[00:18:20] Speaker B: Okay.
[00:18:21] Speaker C: Especially your higher multiple companies, your growth companies, those are just going to absolutely expand. So maybe that's why. And of course, if we have a good trade, if we have a good, if we have good trade negotiations that are taking place and good trade deals that are put into place from these negotiations that basically create more of a level playing field that maybe brings more assets into the treasury that can keep a lid on yields as well.
I think this could be an incredibly powerful time for this market because if we have a long term sustainable trade deal that's equitable for both the United States and China and the United States and the Eurozone United States and other companies like countries like Japan, Canada, Mexico, I think that bodes really, really well in the long term. I think the equity markets will really, will really glom onto that. And even as far as the, I'm doing my best trumpet, the big beautiful.
[00:19:13] Speaker B: Bill.
[00:19:16] Speaker C: Although I know there's a lot of talk about that, the wonderful bill.
[00:19:19] Speaker A: It's a beautiful bill. It's a perfect bill.
[00:19:21] Speaker C: No one's ever seen a bill like this.
Now, Elon and Donald are at odds now because of, because of the deficit.
What could take place to I guess be the Donald Trump advocate, here is the amount of receipts to the treasury because of the tax cuts and the trade deals taking place and the expansion of the economy.
That is could be enough to where it would keep a lid on those yields and keep interest rates down and be good for deficits and be good for debt. Because I, I really believe that he, that President Trump wants to keep deficits low as he can. And I think he's trying to accomplish it from the, obviously the Department of Government Efficiency and as well as simply growing the economy.
And you know, when you do something, when you put something into place, being right may not be as easy as being proven right away.
Right, Right away.
[00:20:23] Speaker B: Right.
[00:20:24] Speaker C: Sometimes it takes a minute.
[00:20:25] Speaker B: Okay.
[00:20:26] Speaker A: Yeah.
[00:20:26] Speaker C: And I think that's what this is. So. But back to back to, you know, let's, let's go back to our lane here. The markets though these, the trade deals and jobs seem to be cooling but not cold by any stretch of the imagination.
The bond market, we're at 3.18 on high yield spreads.
They seem to be okay with where the economy is. Goldman Sachs has a decent number for Q2. I think some of the bears are saying that the economy is going to grow by about 1% this year, one and a half. I think we're 23 to 26 economy, which is good, which is fair, which is normal. And I think we're feeling or now is a real long term normalization of interest rates and economic activity stemming from what took place during the pandemic.
[00:21:25] Speaker A: Well, you and I were talking yesterday. This was somewhat enlightening, honestly, because we're talking about this.
You've used the term melt up, I believe is the way you've described what you kind of expect for the summer months. There's just a slow trickle to the 68, 6900 levels possibly.
It's kind of polarizing. You said we can 62 or 68, probably not a whole lot in between. But I started talking about yesterday that we had the same. It kind of reminds me of 2017 in a way and that 2017 was a super, super quiet year. The market was up a tenth of a percent, up 25 basis points, down 7 basis points. A huge move in the markets was up 60 basis points in 2017. And it was really easy to fall asleep at the will and not recognize how much it was growing over time. It was like watching your grass grow, your beard grow. If you look at it every day, it didn't seem like it was doing a whole lot. You had to look at it from a bigger picture, looking back to see what it had done. But 2017 at the end of the year was up like 32% I think for the entire year on the S and P.
And that kind of, that's the best example that I can think of of that melt up rally that you just don't really notice till you look back at the end of the year and say, my gosh, we're up 30% this year. How did that happen?
And then we were talking yesterday, I thought, you know, what does 2017 have in common with today? It was Trump's first year, right? 2016 was Trump running his mouth and all these things we were going to do. And the market was very volatile, waiting to see who was going to win the election. Trump wins it and then 2017, it was bad news, bad news, bad news. Except the market just went straight up. And that's kind of the same type of feel as what it sounds like you're describing as a best case scenario for this year. I know that's not necessarily your target case, but it's sort of your stars align just perfectly. That could be where we go. And it's kind of polarizing. But there are a lot of similarities. If for nothing else, there's that one major elephant in the room, common denominator in Donald Trump.
[00:23:29] Speaker C: Very true. I mean, if you look at early 2016, we had cracked credit spreads, almost hit 10, like 9 and a half percent on high yield spreads. So there was a tremendous amount of anxiety in regards to the economy on the bond market side in early 2016, in the midst of the election.
[00:23:45] Speaker B: Okay.
[00:23:46] Speaker C: Then of course, 2016 was a relatively mute year. I want to say the market went about 9% that year.
[00:23:52] Speaker B: Okay.
[00:23:53] Speaker C: But there was a lot of consternation that year.
Then of course, Donald Trump got elected.
And if you remember specifically to the night he got elected in 2016.
[00:24:04] Speaker A: Oh, man, that was, that was one of the nights of my career that stands out the absolute most. I was up till 3 o' clock in the morning typing an email to clients, waiting to, you know, chime in on the carnage. And then I got up a couple hours later and the carnage was gone. The market completely erased it.
[00:24:21] Speaker C: Yeah, the market, the market took off and just know, went, went to the races. It was great.
What happened is the market in them. What, what happened is the bond market got absolutely slaughtered.
[00:24:32] Speaker B: Yeah.
[00:24:33] Speaker C: Because we had very low interest rates back then.
[00:24:35] Speaker B: Okay.
[00:24:36] Speaker C: And of course the bond markets, the bond market saw, saw it and said, wait a minute, this guy's going to grow the economy, he's going to cut taxes, that's going to send interest rates up. And that's exactly what happened. So the, the, the, the, the equity markets immediately saw what took place. Equities expanded, interest rates expanded, the whole thing. The tax cuts came in and everything we thought was supposed to happen actually took place in 2017. And you're right. I remember that year very well. We could have just stayed home because I remember the fix being like nine. There was nuts. No one was buying protection, wanted to buy protection. You didn't need to buy protection.
[00:25:13] Speaker B: Okay.
[00:25:15] Speaker C: But it came off of a very volatile 2016.
[00:25:19] Speaker B: Okay.
[00:25:19] Speaker C: Which I find very interesting. So, and again, what do we have here? We have a, not an identical setup. They're not, they're not twin Setups, but I would call them siblings.
[00:25:28] Speaker B: Right.
[00:25:28] Speaker A: Sure.
[00:25:28] Speaker C: We're coming off of, you know, 2025 seems to be a pretty volatile year.
[00:25:33] Speaker B: Okay.
[00:25:34] Speaker C: And there's this, this bill that generates some tax cuts, extends tax cuts.
[00:25:40] Speaker B: Okay.
[00:25:40] Speaker C: And I, and we have these, this tariff, these, the tariff trade deals are starting to, we're getting some clarity on those. So once a lot of these big, few of these big meatballs get sort of behind us, I think the market's going to see a lot clearer path. And back to the old the fund strat where they said that one of the big reasons we had that correction in early April was that one of the covenants of capitalism was broke. A, and a stable regulatory environment.
[00:26:14] Speaker B: Right.
[00:26:15] Speaker C: That the covenants of capitalism is a stable regulatory environment.
And you can't do. And obviously that was severely disrupted in March, late March, early April. So if that part, if that's basically fixed, right. And we have trade deals in place and we have this big beautiful bill has been passed, whether you like it or you didn't like it or whose side you're on doesn't matter, as long as we know what is, is that's the certainty the equity markets are going to need. And I, and I can't think of any way that the bond market look at that, as you know, is any economically contractive.
[00:26:52] Speaker B: Right.
[00:26:53] Speaker C: So I would think the bond market specific to high yield spreads would stay relatively tight, relatively healthy earnings will stay relatively strong.
[00:27:02] Speaker B: Okay.
[00:27:03] Speaker C: And we'll continue to see that 10 to 15 annualized growth and we'll tend to live in a multiple of 12, you know, 19 on the low end, probably 23 on the high end.
[00:27:13] Speaker B: Okay.
[00:27:13] Speaker C: And it won't be, it won't be all that smooth all the time. There'll be fits and starts and hiccups here and there. But I think for the most part we have a, I think we have a 50, 50 chance of either being 6200 at the end of the year or 6800 at the end of the year. It's just we have this tale of two more markets and if the, the, the decider, the decider of which one we get, I think is Jay Powell.
If he, if, if the Fed gets on board that rates are too restrictive and they don't want to cause a long term contraction in the labor markets and they start cutting rates, that's what's going to take us. It's going to be, it's going to be the foundation that was built through the trade deals and the tax regulation and the earnings growth that's taking place over the next two years coupled with a lower interest rate environment that will take us to that higher end, which I don't know if that's a good thing or a bad thing. I know it sounds weird to say that, but when you get, when you get, when you move that far that fast and you start living in the 22 times multiple for a long period of time, it just keeps that banjo string very, very, very tight. So when you get any sort of wiggle economically on the world, regular in a regulatory way, anything, it just, you get two to three multiples cut off immediately. So if you, I mean on an S and P of 300 a share in 2026 and 335, 2027, you get three multiple points cut off. You're talking about a thousand S and P.
Well, I mean, pretty quick.
[00:29:08] Speaker A: And back to. We've talked a lot. The good girlfriend, bad girlfriend analogy, it seems to pop back up around every couple of weeks or so. I mean we've talked about 5% on the 10 year treasury being the, the we don't want to go there. 475 gets us nervous. Right now we're sitting right around four and a half. Are you what you're saying here, would another, when an additional rate cut beyond what was maybe expected, maybe look, give us a little bit of a cushion to where we're. Maybe, maybe we get a half a percent extra buffer there where we're not living in this 4 to 475 range. Now we're living in this 3 and a half to 425 range and we're staying very comfortably clear of that 5% guardrail. And that kind of gives us the confidence we need to move the markets forward. And then maybe I get the banjo string side of the, on the flip side of that, if we live there too long now, you just start to get a little complacent as investors and you just think the market's always going to go up and that's where you can see those catastrophic collapses. But is that kind of what you're saying with the extra rate cut is that it's just giving us that extra, giving us that extra cushion between, you know, the. So we're not getting so close to that 5% when things get a little, a little gnarly?
[00:30:21] Speaker B: Yeah.
[00:30:21] Speaker C: I mean here's the thing is what's, what's communicated on financial media all the time. Well, if the Fed needs to cut rates, they're telling you the economy's in Trouble. No, they're not. It doesn't have to be the economy's collapsing or the economy's overheating. They can simply bring it into a more of a neutral stance without accommodating the economy or restricting the economy.
[00:30:41] Speaker B: Right.
[00:30:42] Speaker C: And the fed cutting rates three times this year, bringing that upper bound to 375 or 350 or something like that, three or four cuts says, okay, we have a strong economy, but I don't want to restrict it too much. Okay, But a little restriction doesn't hurt to make sure it doesn't fly away from us. Right? We don't get entrenched inflation again.
[00:31:02] Speaker B: Okay.
[00:31:03] Speaker C: And it also signals to the, to the, to the bond markets, like, okay, we think the economy will stay relatively stable and will not be overheating. Thus the bond markets, which is the secondary markets, which is where the 10 year treasuries and those guys live, which is at four and a half today, will have room to come down.
[00:31:22] Speaker B: Right?
[00:31:22] Speaker C: Because I think the Fed takes signal from the bond market, but I also think the bond market takes signal from the Fed.
[00:31:30] Speaker B: Right.
[00:31:31] Speaker C: And again, those guys probably live in, in the same dorm too.
[00:31:36] Speaker B: Right?
[00:31:37] Speaker C: So, so, you know, I think it's important that, I think it's important that the, the Fed starts at some point. Normalize and neutralize.
[00:31:46] Speaker B: Okay?
[00:31:47] Speaker C: They don't, they shouldn't get there too fast. But it's not indicative of a weak economy. It's indicative of a neutral stance of a good economy. And I think the bond market will see that and say, okay, yeah, we can cut off a few, you know, we have a little bit more room. We don't have to have a, we don't have to be selling up Treasury. I think, I think we have 100 basis points in 10 year Treasury. Right now it's at 4 and a half. I think it could be at 3 and a half if we had a Fed that was a little bit, you know, more dovish and willing to, you know, willing to cut a little bit more. And this very temporary setup we have where all of a sudden the US Treasuries aren't the safest place to be in the world because Donald Trump's president, that's a big part of it. That to me is about 30, 40 basis points. Just that.
So you take those two things away, which I think will probably come away here by the end of the year and I don't see why we wouldn't have a 3.5% 10 year treasury with a 375 upper bound on the policy rate with about a 2 1/2% economy. I think the equity markets will love that. Earnings will stay strong. And again the, the, the S P the highest multiples for the S P 500 lives. When the, when the 10 years between 3 and 5% that's when we get the highest multiple on the, on the, on the markets because higher than 5%. Well then we have too much competition from the bond markets because well hell I can, I can take no risk at all and get 5% right. That starts to come out of the equities. But if it's below 3% that's when the bond market signaling to the economy and signaling the equity markets. Hey we have a slowish, slow sluggish economy and then the whole thing just kind of contracts a little bit. So you know it needs to get into its happy place and they all need to start orbiting each other a little bit closer.
[00:33:33] Speaker A: Yeah. Which we're in our happy place technically. It's just we keep flirting with our, we keep messing, we keep tap dancing around that 5% upper boundary which is, that takes us out of that we'd love to be. I mean if three to five is ideal, we'd really like to stay around four. Right. That way we're not too hot, not too cold but right there in the middle somewhere. And we've been kind of.
It took us a long time, it took us a decade plus to get back up to 3% and then we kind of overshot it really quickly shot from three through five really quick.
[00:34:07] Speaker C: I mean I would like, I would like the 10 year to live between three and a quarter and about three and a half. Three and three quarter and have a policy rate that's 50 basis points either side of that. I mean I think it's, I mean on it. Well actually I would like it of course lower than that. You know we, you don't want to have an inverted 10 year to 3 month rate but you know if we have a 3, if we have a 3 and a half percent 10 year and a 3% policy rate and a 2 and a half percent GDP.
Amen. Take that is a nice.
That's yacht rock. That's a yacht rock economy.
[00:34:42] Speaker A: Yeah, that's the. Have you seen the Good Girl for.
[00:34:45] Speaker C: Cross and Michael McDonald and a little bit of, you know, Steely Dan.
[00:34:49] Speaker A: That's the unicorn of the hot crazy matrix. Have you seen the hot crazy matrix?
[00:34:54] Speaker C: Not yet.
[00:34:55] Speaker A: Oh my gosh. You've got to like as soon as you finish this you got to take seven minutes. Yeah, go on YouTube and just YouTube search hot crazy matrix. It's a guy, basically, he breaks down the. The guys are looking for girls that are somewhere on this axis of the hot. We can handle this much hotness and this much crazy.
Yeah, that's a unicorn. Yeah, yeah, that's a unicorn. And basically his premise is that there is no such thing as a less than 5 crazy, more than 5 more than 10 hot, or more than 9 hot, something like that. You have to check it out. I can't do it justice. But there is this little zone there where he says this is the unicorn zone. This does not exist. But it would be perfect. If you find it, let us know. But we don't believe this really exists. So you have to check it out. It's worth seven minutes of your time.
[00:35:39] Speaker C: I really hope my incredibly beautiful and not crazy wife is not listening to this.
[00:35:43] Speaker A: There you go.
Surely you are. You don't tell her about this show, do you?
[00:35:49] Speaker C: What show?
[00:35:50] Speaker B: Yeah, exactly.
[00:35:52] Speaker A: Well, as always, thank you for, for joining me. And for listeners, viewers, wherever, wherever, wherever, however you're consuming us. We are here for your entertainment and education purposes only. We're not here to tell you what to do with your money, but I do encourage you to reach out to Matt and his team at 702-655-8300 or just head over to the. To Intelligent Investment.com to learn more about ARPG and Matt and his brilliant team and all of the infinite wisdom hiding under that beautiful head of hair of his. And thank you for coming on here as always.
Yeah, it's still looking solid today.
I feel like I lost.
[00:36:28] Speaker C: Clean shaven.
[00:36:29] Speaker A: I lost a good 10 years.
[00:36:32] Speaker C: You look like a.
You look like a.
A highway patrol supervisor.
I want to talk to.
You have no right to pull me over. You're the guy that would show up.
[00:36:51] Speaker A: I. I don't think that I can possibly say thank you to that. That cannot be a compliment. But I'll. I'll take it, I guess, is whatever it is.
Oh, man. Good to see you as always, bud. See you next week.
[00:37:05] Speaker C: See you next week.
[00:37:06] Speaker B: Later.
[00:37:08] Speaker D: As always, the Intelligent Investment show is for your entertainment, education and general amusement purposes only. It is not intended. Intended to be financial advice or investment advice of any kind. Neither Matt nor I or any of our companies or associated entities know anything about your financial circumstances. So it would be unwise for us to tell you what to do with your money. We encourage you to seek a professional. If you do have questions about your portfolio or your financial plans. If you would like to reach Matt and his team, you may do so by giving him a call at 702-655-8300 or visiting intelligent investment.com we thank you for joining us. See you next time.
Discussions in the Intelligent Investment show are for educational purposes only. The information presented should not be considered specific investment advice or a recommendation to take any particular course of action. Always consult with a financial professional regarding your personal situation before making investments, investment or financial decisions. The views and opinions expressed are based on current economic and market conditions and are subject to change. There is no guarantee that any statements of future expectations will come to fruition. All investing involves risk, including the potential for loss of principal. Securities offered through United Planners Financial Services Member FINRA SIPC Advisory services offered through American Retirement Planning Group. ARPG and United Planners are independent companies. Garrett Lille and Wealth Partners are not affiliated with ARPG or United Plan.
Any endorsement that I may have given during this recording it is important to note that I am not a client of arpg. The views expressed should not be considered representative in any way of my past, present or future experience with MAT or arpg. No incentives have been provided to me in connection with any endorsements I may have given on the Intelligent Investment Show. Investing involves risks and there is no guarantee of any future results, performance or success.
